India, Bangladesh, Ethiopia, Congo and Myanmar are the only five countries in the world’s 25 largest countries by population, which still do not permit foreign direct investment (FDI) in (multi-brand) retail trade. In the top 25 nations by GDP (PPP), India is the only one.Ethiopia is negotiating with Wal-Mart and Tesco to allow them to open stores in the country.
Our “friendly” neighbour Pakistan permits foreign investment in retail trade. In a 2011 report, Deloitte included Pakistan as amongst 10 hidden heroes – the next generation of retail markets. Carrefour operates two hypermarkets in Pakistan and is planning to open seven more. Germany’s Metro operates 10 hypermarkets.
Local Pakistani retailers have been largely welcoming of foreign investment in the country’s retail sector, seeing foreign retailers as helping improve the quality of the overall market. The foreign chains have influenced Pakistani consumer behaviour and the principal beneficiary appears to be local retail chains.
The recent noises from the corridors of power in New Delhi seem to suggest that Prime Minister Manmohan Singh wants multi-brand foreign retailers to come in state by state, as the UPA government is not able to get a majority consensus on this issue, with allies such as Mamta Bannerjee still opposing the move.
This is not too different from the way China opened up its retail sector. Initially, China also only allowed foreign retailers to open in select metropolises such as Beijing, Shanghai and Shenzhen, and, moreover, only in certain districts within those cities. Through these “invisible barriers”, China succeeded in giving local retailers protection, while, at the same time, the local Chinese learnt from the more efficient business models of foreign companies.
Even though the world’s largest retailer Wal-Mart has opened some 340 stores in China since it entered the country 16 years ago, it still remains smaller in revenue terms, when compared with local retailers such as Suning, Shanghai Bailian Group, Gome and Dashang.
Allowing foreign retailers to set up shops does not guarantee their success. The exits of Best Buy from China, Wal-Mart from Germany and Carrefour from Korea demonstrate the incapability of multi-national retailers to fight local competition due to lack of understanding of local consumer tastes, preferences and culture.
Opening up Indian retail sector to FDI will help in the addition of 330 million square feet of new retail space. This will create a minimum of 4.58 million new jobs.